Petrobras improves results in 2017

15.Mar.2018

Petrobras posted a R$446 million loss in 2017, but continued to improve its operating results, and it was the smallest loss in the last four years.

The company would have made net earnings of R$7.089 billion, but one-off expenses, in particular a R$11.198 billion deal to end a class action filed by investors in the United States, and participation in federal tax settlement programs, which amounted to R$10.433 billion, had a significant impact on the results.

Petrobras’ operational performance remained on an upward trend, as operating income more than doubled between 2016 and 2017, to R$35.624 billion. There was a R$16.4 billion reduction in impairments in relation to 2016, and this was the main factor that lifted operating income. In 2017, there was a R$1.3 billion impairment related to the company’s fertilizer sector assets. Operating income was also favored by a 10% reduction in manageable operating costs, a 24% increase in the oil price in international markets, and higher export income.

“We are on a consistent trajectory of recovery, doing exactly what we set out in our business plan. The biggest impacts on our 2017 financial statements were non-recurring expenses that have reduced uncertainties and risks in relation to the company’s future,” said Petrobras’ CEO, Pedro Parente.

In 2017, the company reduced its net debt to US$84.871 billion, the lowest figure since 2012. Through active debt management, it was also possible to extend the average maturity period from 7.46 to 8.61 years while cutting the average interest rate from 6.2% to 5.9%. In addition, interest expenses fell from R$25.6 billion in 2016 to R$22.3 billion in 2017.

Positive metrics

Petrobras improved its safety metrics in 2017. Its planned goal was to reduce the recordable incident rate to 1.4 per million hours, and the result achieved was 1.08, as previously announced. The company has now adjusted its 2018 target to 1.0 incidents per million hours. This was originally the target for 2020 in the company’s strategic plan.

The ratio between net debt and cash flow, as measured by EBITDA, rose from 3.16 in September 2017 to 3.67 in December 2017. This was because of the aforementioned effects of the class action deal and tax settlement programs.

Despite this increase, the company has maintained its target, announced in its strategic plan of October 2016, to cut its net debt to EBITDA ratio to 2.5 by the end of 2018.

Other highlights of 2017

Other highlights of 2017 included proceeds of R$6.3 billion from the sale of Nova Transportadora do Sudeste (NTS), positive free cash flow, achievement of the production target, and higher exports. The company also rectified all indications of material weaknesses and it presented an integrated report of its operations for the first time.

Details of these highlights are given below:

Positive free cash flow

Free cash flow was positive for the 11th consecutive quarter, amounting to R$44.064 billion, up 6% from the previous year.

Production target achieved

For the fourth year in a row, the company broke its production record in Brazil, and for the third consecutive year it achieved its production target. Total oil and natural gas output was 2.767 million barrels of oil equivalent per day (boe), including 2.655 million boe in Brazil, despite the sale of assets in Brazil and abroad.

Sales of oil products in Brazil declined 6% in comparison with 2016. Production was 1.800 million barrels per day (bpd), while sales amounted to 1.940 million bpd, due to increased imports by third parties.

Higher exports

Petrobras’ oil and oil product exports from Brazil increased 32%, reflecting higher Brent crude prices in the international markets, while its imports into Brazil fell 18%. The company remained a net exporter from Brazil, exporting a net 361,000 bpd in 2017, up from 167,000 bpd in 2016.

Internal controls

Since its 2014 financial statements, Petrobras has recorded indications of material weaknesses in some of its internal controls, such as in access management and segregation of functions in systems. These weaknesses were completely rectified in 2017.